Drill, Drill, Drill
The claim that the oil companies are sitting on leases and not drilling defies all logic. With oil at $135 per barrel and drilling rigs renting at $300,000 per day, there are no idle rigs anywhere.
The claim that any oil we drill for now will not come on line for five years or longer – and will thus have no effect on prices today – is incorrect. Unlike past oil crises, where the spot price of oil rose more than forward prices, the oil price for delivery in 2012 is trading at $138 per barrel. The market is sending a clear price signal that our problem is in the future – because we do not have the will to curb demand or increase supply.
How many houses would someone invest in if there were a future guarantee that the price would not decline? It is anticipation of ever-increasing prices that fuels the mania.
The oil market, however, has more than anticipation; it has a well-defined forward price signal. This is a key component of the added $25-$40 per barrel in current oil prices. Congressional hearings and "make it go away" legislation will not stop that. Demonstrate the national will to address the supply and demand issues now and it will.
As forward prices decline, watch how quickly the spot price comes down.
Joseph Petrowski, president of Gulf Oil writing in today's WSJ